Within the hotel industry the topic of discussion has always been how do we maximize our room revenue each month as this also heavily impacts the total revenue your hotel is able to generate. We are now nearly halfway through 2023 and the demand for hotels has settled back to what it was before 2020. Many hoteliers are asking the question as to how we can increase our fair market share from all the demand coming into our node.
There is no doubt many factors that impact your hotel’s ability to generate the most possible room revenue per month but one of the most important areas that need to be focused on is your hotels segmentation. Your segmentation impacts your hotels budget, allocation of staffing resources, your distribution needs, reporting, tracking trends and forecasting, your decision making and your ability to generate the most possible room revenue per month.
Hotel market segmentation involves creating market groups which categorize your hotel guests based on their booking patterns, reason of travel and the similar characteristics they share. Examples of common market segments include:
- OTA
- Web Direct
- Hotel Direct
- Government
- Corporate
- Travel Agent
- Business Group
- Leisure Group
- Series
- Shipping
- Air Crew
- Walk Inn
- Long Term
- Time Share
Gain a better understanding of your guests
There are many different reasons why guests would choose to stay at your hotel, and this can be based on your location, price, facilities, reason of travel and product offering. It is important to note that each hotel will have a different market segmentation that is best suited for their hotel based on these factors.
By understanding why guests would choose to stay at your hotel and better grouping them into market segments it allows you to identify common trends and characteristics per market segment. It is important to know which market groups would book your hotel more often and what characteristics they would have so you can plan better.
Each market group has different traits which impacts your hotel’s ability to generate maximum room revenue. Some of the most important traits per market segment can be found below:
- ADR and RevPAR per segment
It is important to understand that each segment serves its own purpose, and each segment will have its own average daily rate and total volume its able to produce for you each month. It is crucial to balance your segmentation so that you are able to generate as much room revenue as possible without displacing any revenue which would happen if you take too much business from a segment that only yields low rates.
- How they book your hotel
Each segment books your hotel through many different ways such as via the GDS, OTA’s, your hotel website, direct emailing or phone calls, wholesale systems etc. In order to get business from a segment you have identified as an opportunity for you, you need to make sure you are able to be booked from this segment effectively. The way you distribute plays a massive role in the type of business your hotel can get. It is important to note that each segment also has different channel costs and commission or acquisition costs.
- Cancellations and no-show trends
Each segment will have different cancellation and no-show trends which need to be understood so that the correct cancellations policies can be put in place in order to minimize the loss of room revenue your hotel can experience. Based on the cancellation trends per segment it is also important to put release clauses and prepayment policies in place. This is done so that you can release rooms in time so that you can fill them back up by other segments who would be able to book them in the short lead time.
- Length of stay per segment
The average length of stay per segment are slightly different from one another which is important to note as this impacts the total room revenue you can generate on average.
The average length of stay would also impact the rate you can charge to the guest because long stay guests for example would be on a much lower ADR which will impact the overall room revenue you are able to generate per day. Shorter average length of stay business would yield you the highest rates but the trick is to find the good mix whereby you can yield the highest rate possible whilst still maintaining a good average length of stay as well.
- Booking lead time
The booking lead time is the number of days between when a guest makes a reservation to the time they arrive at your hotel. Each segment has a different average lead time which is important to understand so you can plan and know when you can expect bookings to come from each segment. The better you understand the lead time per segment the more strategic you can be in your pricing and forecasting for each segment.
- Pricing per segment
We know that each segment brings in different ADRs for your hotel and each segment is able to pay different rates for the same room at your hotel. Therefore, it is important to make sure your pricing is aligned correctly per segment so that you can maximize the production you are able to achieve from each segment.
How your segmentation impacts your budget and planning
Once you have identified the correct segmentation for your hotel you then need to put a budget together per month and per segment. This will allow you to work out and see how much total room revenue you can expect overall and how much each segment will need to contribute each month. Doing this will further help you plan your distribution needs, strategy and action plans that need to be made per segment, and the staffing requirements you will need in order to achieve the budgeted numbers.
Are you effectively tracking your segments
Once your budget, distribution setup, strategy per segment and staffing structure is in place to go ahead and fetch the correct ADR’s and volume per segment according to the budget. The next important step is to make sure you are able to track the pick-up trends and production per segment effectively and accurately. This is done by making sure your PMS is setup correctly and that you have built all the correct rate codes and market codes in the PMS so the production per segment can be tracked effectively. The reservations team also needs to ensure they are using the correct rate codes for each reservation that comes in so that the data per rate code and market group remains accurate.
Having the data available to see how each segment is doing verses the budget allows you to drive better results per segment. You are also able to create far more effective sales, marketing and revenue strategies towards each segment as you will know when to fetch business for each segment and which segments are best producing for you and which segments are not. Getting the balance of your hotels segmentation right will always be fundamentally important in order to generate the most room revenue possible each month.
Author – Michael Breytenbach – Commercial Portfolio Manager – TrevPAR World Group
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